The S&P 500 is up 15% from its lows (since October) as is the Nasdaq (up 17% since December) in a rising-rate environment with a job market that could be making inflation “sticky.” That fact alone, combined with the fact that many analysts are concerned that stocks haven’t adequately priced in declining earnings, suggests a major market correction is imminent. Right?
Not so fast. Mike Cintolo, Chief Analyst of our flagship Cabot Growth Investor advisory, our resident market historian, and probably the best at timing the stock market of any investment expert I know, says otherwise. Mike has been identifying green lights in market signals and moving his portfolio out of cash and increasingly into promising stocks.
I’m not one to second guess it, because just about everything Mike says about the market is right (which is why he is recognized by Market Digest as one of this industry’s top market timers every single year). But it definitely doesn’t feel like we’re in the midst of a secular bull market. Not when everyone from my 17-year-old nephew to the guy who painted my house a couple months ago is once again extremely bullish (FOMO is back) and opening up a Robinhood account. That kind of frothy sentiment is historically a major red flag, as it was at the turn of the century just before the dot-com bubble burst.
But in an effort to not get too caught up in the moment myself – positively or negatively – I thought it would be a good idea to take the 30,000-foot view of the stock market and look at the historical trend. So I pulled up a 100-year stock market chart. Here’s what it looks like:
100-Year Stock Market Chart
This is a chart of the Dow Jones Industrial Average in real (after inflation) terms, courtesy of the website macrotrends.net. Technically, it’s a 108-year chart, dating back to 1915, and thus including the 1918 Spanish Flu global pandemic and accompanying market crash. The market bottomed in late 1920 and proceeded to embark on a nine-year bull market that saw stocks rise nearly 600% - the Roaring ‘20s indeed.
Of course, then came Black Tuesday on October 29, 1929, when the party came to a screeching halt and the Great Depression ensued. Stocks lost more than 85% of their value in less than three years, and only managed to recover about half those losses once they finally bounced back in the mid-1930s.
The next true bull market didn’t start until 1949. That one lasted even longer than the Roaring ‘20s, with stocks mostly rising for 16 years before topping out in December 1965. Again, a bear market emerged, and didn’t stop until the middle of 1982. The next rally – you’ll notice a pattern here – lasted longer than the one before it, going from August 1982 until the height of the Dot-com boom in November 1999, more than 17 years long.
You know what happened next. The bubble burst, stocks came crashing back to Earth for nearly three years, recovered all the losses by late 2007…then fell off a cliff again during the 2008-09 subprime mortgage crisis-fueled recession. The bottom came in March 2009. Stocks have mostly been moving up since then over the past 14 years.
If market history holds, then the current bull market will be longer than the previous one. As the 100-year stock market chart shows, there have been three major bull runs prior to this one. The first lasted nine years. The second one lasted 16 years. The third one lasted 17 years. Thus, it’s not unreasonable to think we could have another two or three years left in this rally—which would indeed put us in the mid-to-late innings of this bull market.
That doesn’t mean there won’t be some speed bumps along the way – perhaps (likely?) even this year. There already have been three big ones in the last few years alone: the fourth-quarter 2018 correction (remember that?), when stocks fell nearly 20% in three months, the Covid-19 crash which briefly cratered the markets in early 2020, and, of course, 2022’s bear market.
Despite those three major pullbacks, they look more like small blips on the 100-year stock market chart. Market history is dotted with those blips. What matters more is the long-term trend.
And right now, that trend is firmly on an upward trajectory. History says it should last another few years.
*This post has been updated from a version originally published in 2021 and is periodically updated to reflect market conditions.